Episode 39: Interview with Tony Miller

Scott Williams: Sweet Home Santa Barbara, where the skies are so blue. Sweet Home Santa Barbara, what’s worked for me can work for you.

Jonathan Robinson: Welcome friends to the Sweet Home Santa Barbara. I’m your co-host, Jonathan Robinson. I’m with my realtor friend and co-host.

Scott Williams: Scott Williams. Hi, Jonathan.

Jonathan Robinson: Hi, there. Well, today we have a guest I’m excited to interview because he has a lot of interesting information about electricity and solar and all kinds of stuff. Let me do a brief bio of Tony Miller. Tony works for a company called Electric Power that makes backup batteries, and he’s a regional manager for enrollments in the Santa Barbara Home Power Program, which is a unique program aimed at solving elements of the SB City strategic energy plan through the installation of end-to-end solutions and solar and backup battery microgrids for residential homes. I’m sure he’ll go more into depth about what he does and how it applies to not only the city of Santa Barbara but potentially to you. I want to welcome you to Sweet Home Santa Barbara. Tony, welcome.

Tony Miller: Thank you, Jonathan. I’m very pleased to be here. Nice to see you, Scott.

Jonathan Robinson: Where do we begin, Scott? What’s your first question?

Scott Williams: Well, for me, solar has always been this interesting thing, but I recently bought a house that has solar panels on it, so it’s now become personal. Tony, why don’t you talk to us a little bit about the people who see them on people’s roofs I suppose people must ask themselves about putting solar panels on their own houses. What works? What should people know about this?

Tony Miller: Well, Scott, you did buy a house with solar and batteries on it. It was fun to take a look at what you have in your home and what it’s going to do for you. Essentially, what it does is provide power for you, renewable power for you during the daytime through the generation of solar panels. Then, the battery stores some of that power and it’s deploying power into your home or back onto the grid in the evening time so that you are able to use renewable power during that later time in the day when renewable power otherwise wouldn’t be able to be produced. And when otherwise, a homeowner would have to buy power from the utility and they’re going to use fossil fuels to produce and distribute power to your home. So it is doing its job of providing a full end-to-end renewable solution that helps you at your home, reduces and controls your cost for power, gives you the ability to use stored power when it’s an emergency, or when it’s an inconvenience for you, and it helps everyone in the community by offering a way to meet all of our goals for renewable energy.

Scott Williams: Yeah, well, to me it was a surprise because it was included with the house, but I suppose a lot of people don’t have this on their homes and have got to be thinking, “Should I actually add solar panels onto my house?”

Tony Miller: The most common question we get, one of many is, “Will solar work on my home?” Every home is unique and we’re going to always look at every home with the opportunity to think that it will work. Definitely, talk to an expert before you assume it won’t work. We certainly prefer certain conditions and roof types and really you can boil this down to two simple questions to try and figure out what the solar readiness of your home is. Is it up to code, for example, do you have California shake on your roof or do you have the actual composite shingle or a standing seam metal roof or concrete tiles? Because California shake would not be the current code. We cannot install it on that. But we can install it on a roof that is composite shingle and or concrete tile. Can roofers walk on your roof without damaging the tiles? That’s another great simple question to ask yourself because if they cannot, then that means your roof is really going to be uninstalled as it is. Because it’s going to be fragile tiles and there’s going to be extra work and labor involved to prepare your roof in order to install the solar panels there. If you want to avoid the extra costs, then it’s great if you have a composite shingle roof, known as asphalt standing seam metal or concrete tile tree shade is a condition that we look at as well. South-facing, west-facing, and east-facing in that order are the ideal roof planes. As long as you have one or two of those available and not full shade on those roofs, then we are going to be able to generate some renewable power from there.

Jonathan Robinson: I’m wondering, Tony, what it costs say an average house and what’s the return on investment? How long does that take?

Tony Miller: That’s a good question, Jonathan. It really comes down to obviously like what is that investment that you’re making? There are basically two avenues a homeowner can go down for acquiring a solar system or a solar and backup battery system. You can either buy a system, which means you’re going to spend cash up front or you’re going to get bank financing to pay for that system, or you can use a third-party financing instrument where you don’t own the system, but you’re buying the power that the system produces. So if you buy the system, that means that you have all of the cost of ownership and you’re buying a depreciating asset, you’re buying something that has certain warranties attached to it that are going to last on different amounts of time for different parts of the equipment. You are buying all of that responsibility in terms of replacing a battery that’s only built to cycle 3650 times, which is 10 years. You’re buying the inverter that’s going to need to be replaced during the useful life of your system, which is 25 to 30 years. You’re buying all the operational and maintenance costs that come with that, which will be somewhere in the neighborhood of a few thousand dollars over the life of a system. So if you’re going that route, you’re looking at a payback route and that’s what you were describing. If a system costs $40,000 and if you spend $3000 a year on power, then you would divide 40,000 by three and you can see that it’s going to take you 13 and a half years to pay yourself back. Now, that’s not including any additional costs. The replacement costs, and the operational and maintenance costs. On the other hand, if you choose to avoid the cost of ownership and have a third-party financing instrument in place, that doesn’t have to be a debt instrument called a power purchase agreement.

This is actually the most common way to get a system on your home at no upfront cost. Today, it’s how we do it in our unique program that’s city-supported called the Santa Barbara Home Power Program. You can have a 25-year service agreement that covers bumper-to-bumper, all of the operational maintenance or replacement costs. It really boils down to being more of a cashflow model, a positive cashflow model you take. What are you spending today on power with your utility provider? In this case, everyone’s going to be with Edison. What does that monthly cost? Well, if we replace that with a degeneration of a solar system at a kilowatt-hour rate that’s reduced from the SCE rate, the Edison rate, then you are able to save money on a monthly basis, so you’re achieving savings today’s dollars. You’re locking in a rate that saves you from the rapidly rising future rate increases of the utility. Then, you’re also gaining the advantage of having backup power in your home and participating in a community-based solution. You can choose one of those two methods, both of them will save you money over the long term. One is a payback method and has a lot of stipulations associated with it. The other is just a really simple energy as a service model and it’s a positive cash flow model. It saves you money on day one, you don’t have any upfront costs and everything’s covered, so it’s super easy, simple, high peace of mind.

Jonathan Robinson: I can see why that’s popular.

Tony Miller: Well, we have been busy setting up homeowners across the city and the county of Santa Barbara since October of last year. We have signed up about 150 homeowners across the county and we’ve been installing homes across the county since early June of this year. So we had a nice long enrollment period, and now we’re in an installation period. We’re still, of course, enrolling new homeowners, and meeting with homeowners on a daily basis. There’s a lot of interest and we’re solving really important problems. So it’s a really great program to be involved in.

Jonathan Robinson: Sounds wonderful.

Scott Williams: Well, this is a relatively new model, is that correct? It’s always been buy your own panels is what I remember is how it used to work.

Tony Miller: That’s right, purchasing panels and getting tax credits and or doing some sort of a lease arrangement has been the most typical way to acquire a system up to this point. Both of those require that you either spend your cash or use a financing instrument that impacts your debt-to-income ratio, right? Or you’re paying high-interest expenses. But now through the evolution of financial instruments and third-party financing that we are utilizing, we are able to have a no upfront cost solution for the homeowner. The reason that this really works well for the city, for instance, is that when you look at certain constituents in our city, a lot of certain areas do not have access to a system like this. If they needed to get financing, they don’t have enough bandwidth in their debt-to-income ratio to allow them to get more financing to take on a new loan, or maybe they’ve had issues with credit. Maybe if you have had issues with credit, then you have a more challenging time accessing this type of equipment. So with the city, what we’ve done is, we have what’s called a reserve fund set up. Every kilowatt hour of power produced from one of our systems has a rate associated with it that homeowners are paying and a very small percentage of all that it goes into this reserve fund. That reserve fund does two key things. Number one, it acts to secure all the equipment on the home instead of a property lien, so you avoid property liens. Number two, it allows for anyone, no matter what their FICO score is to participate in this program so that every single homeowner, as long as their home qualifies in terms of being solar-ready, can participate in this renewable energy end-to-end storage solution and help the whole community achieve a hundred percent renewable goal by 2030 that the city has.

Jonathan Robinson: That’s an amazing goal. It seems like this is a great program. Why doesn’t everybody do it that is available for it, meaning with the roof and such?

Tony Miller: It’s a good question, Jonathan. Not all roofs qualify, as we talked about, there are some more challenging scenarios. There are plenty of California shake roofs out there. Like California shake was basically put right on top of slats and it avoids the underlayment structure of a roof, like a plywood decking. So it’s not an up-to-date current standard for the roof. We can’t install it on that. If you have an asphalt shingle roof that is 75% to 80% of the way through its useful life, then it will need to be replaced before we can install it. If you have a clay tile roof, we are going to have to undergo a certain amount of labor in order to prepare that roof to install it. There is a certain percentage of homeowners who fall into one of those categories. There are some other elements that lead to homes not qualifying. In fact, there are a lot of homes that are rented in the area, right? People are renters, they’re not the homeowner, so they may like the idea, and the homeowner might like the idea in general, but when the renter is paying the utility bill and the homeowner is not, then there’s not a lot of motivation there. It’s a problem we’re working on solving. So is the roofs. Trying to find a way where we can access some support for roofs would be a fantastic development in this program or in general. There isn’t a solution like that right now. I’m putting it out there, hoping that we can find that at some point.

Jonathan Robinson: Roofs are pricey.

Tony Miller: They certainly are. We definitely have a couple of roofers we work with. Roofers have been super busy, as you’ve probably seen.

Jonathan Robinson: Yes.

Tony Miller: The rains we had last January really opened a lot of homeowners’ eyes to the condition of their roof and it really slowed down the workload, it delayed a lot of work on the plate of roofers. So for those two reasons alone, there’s been a short supply of roofers lately.

Jonathan Robinson: Where I live, we lose power every now and then. If you have a solar, are you pretty much protected from that, or do you always need backup power?

Tony Miller: Very common question. There’s a misperception built into that, right? Yes, if you have a solar system, it would seem obvious that it’s providing your home with power, an alternative source of power. So, if the utility service went off, wouldn’t that power continue to give your home the power that it needs? The answer unfortunately is no. If you just have a solar system for grid safety reasons, when the power grid shuts off, the solar system shuts off. The power safety reasons have to do with line workers, if there were line workers in the area it would be unsafe to have the solar back feed coming back onto the grid. We’re all interconnected to the grid with our systems. So that’s why a solar system will not give you that backup power itself. You do need to have a backup power solution, which would be a backup battery. So, the solar system works to power your home during the day and also put power into that battery. So, it’s storing some of that power that’s being generated during the daytime. That battery is going to have a state of charge always maintained so that if the power grid goes off, we can island your home will have an essential loads panel that the battery starts running so that you’ll have fresh food, you’ll have internet, you’ll have the ability to charge devices, you’ll have the ability to turn on certain lights in your home so that you have a place to stay safe, you have a place to be entertained, you have a way to communicate. So you’ll have essential loads covered. There are a lot of battery options in the market right now that are not backup batteries. They are just load-shifting batteries.

That is a partial solution that is being offered by many solar and storage providers. As a result of some rate changes that occurred with the utility over the last six months that make the battery, is a critical component for achieving the economic advantage that a solar and battery system has the ability to provide. So when you look at solar and battery without the backup component, you can certainly use the battery to store power during the day, and then you can deploy power from the battery to offset some of your evening and nighttime purchases from the utility and you can still gain an economic advantage from that. The scenario I’m referring to, but is only a partial solution if you want to have the ability to run your home in a power outage and there are a lot more of these happening now. There are more and more unpredictable events. There are more and more planned power shutoffs if you want your home to run during those events, you have to have a backup battery, not just a load shifting the battery. Our program, the Santa Barbara Home Power program includes this backup battery in every system. It is part of the solution. It is not an add-on, it is not an extra, and there’s no extra cost. It’s covered for the entire 25-year term of the service agreement. It gets replaced or upgraded whenever that’s needed, along with all of the other system components.

Scott Williams: I’ve certainly noticed more than a few cutoffs in the last year. I don’t know quite what’s going on out there in the world of the grid, but there’s never been so many in my memory.

Tony Miller: That’s a function of many things. But overall, in general, Scott. We see more of these because the grid is aging and deteriorating. We live in a society where for a hundred years, the investor-owned utilities that service three main areas in the state of California have had zero competition. They are what are called regulated monopolies. They’re governed by the California Public Utility Commission, which is a state government agency, and they are able to impose tariffs and fees at whatever level they desire in order to cover all of their costs. Well, when you leave something like a home unattended for a hundred years, it probably needs a lot of work from time to time. So that’s what you’re seeing the system has to get turned off from time to time for work to be done. That’s one thing that’s happening, and another thing that’s happening is we have a lack of power relative to demand in the evenings in California. That is a dynamic from the way the power grid is set up right now, our generation facilities cannot produce enough power between the hours of 4:00 and 9:00 PM relative to the amount of power that we demand for at that time. So whether you’re looking at it from a renewable power generation and distribution standpoint, or a fossil fuel powered generation and distribution standpoint, that demand and supply gap exists to a certain extent at certain times of the day.

The storage battery power is one of the solutions for that gap, and that is another reason why the city supports this program. This program puts more storage into the market. That storage is offsetting that demand gap every evening. This is an extension of what you’re seeing and other areas of our community. For instance, you know that our schools have had solar arrays placed on top of the parking lots and they’re currently getting retrofitted with batteries so that the schools are resilience hubs where we can go in an emergency to gather, find emergency response, charge devices, communicate with others, and have a central location that has a distributed energy resource in place so that it’s not relying on the centralized utility grid. Similarly, we’re installing and retrofitting load stations with batteries so that when our single point of failure into this utility service from the backcountry is ever compromised, we have backup power at the load station so that we can then send just power that’s been stored to homeowners so that they will experience fewer outages and we’re prepared for unplanned outages. So our program is an extension of that. It is creating distributed energy resources at the residential level in the neighborhoods. It’s localizing power so that it’s giving you the control back, it’s localizing power so that we can have a transition away from the centralized utility grid system, which is not very reliable anymore.

Jonathan Robinson: Yeah, any last question you have, Scott?

Scott Williams: Well, it seems to me like going back to where we started, Tony, was that you can buy a system or you can participate in the system that you’re suggesting. I want to go back to the differences of that. Well, I want your opinion, because that’s what people are going to probably have in their minds as they’re listening to this, “Well, should I go out and buy a system or should I participate in yours?” What do you say are the main differences here?

Tony Miller: The main difference when you buy a system is that you’re paying upfront money for a depreciating asset. So you’re taking on all the opportunity costs, right? You’re basically saying that I don’t have a better way of spending this money, right? Whereas if you were to choose the method where you don’t have any upfront costs, you’re actually keeping all the time value of money on your side. So that goes back to a financial rule that simply states that a dollar is worth more today than it is at any point in the future. So if you can avoid spending today’s dollars on a depreciating asset, you have all the time value of money on your side. Now, that’s not to say that we don’t have some sort of built-in cost adjustments with our program that you need to factor in. For instance, there is an adjustment made every year. There’s an escalating rate of 2.9%. You can simply make some assumptions about your own financial situation. Can I invest $50,000 into something where I can earn greater than 2.9%? If you can, then it makes a lot of financial sense for you to make that investment. Instead of buying a solar system along the way, you’re avoiding all of the long-term costs of ownership by making that second alternative choice with no upfront costs.

Scott Williams: Well, I would think in most people’s minds there would be a thought like, “Okay, I have a $250 a month electric bill, what’s this going to do to me?” I think that’s probably a basic question that people are going to make.

Tony Miller: Right, yeah. That’s a great way to look at it, right? That leads one down the path of the positive cash flow model. If you’re spending $250 a month today, every home is going to have a different situation, going to be a different pallet to create the system and design from and have a different output. But you can expect to save somewhere in the neighborhood of 10% to 40% on your monthly utility bill. So if you look at your total cost of power today being $250, you can replace that with a cost that’s 10% to 40% lower than that by participating in this program or having a system put on your home that’s giving you a monthly option to save money.

Jonathan Robinson: I want to have people have a way of contacting you, but I do have one more question, Tony. For those people not living in Santa Barbara County, like me and a lot of our listeners, how would people find out about programs like this in their area? What would it be called?

Tony Miller: It’s a great question. Well, first of all, we are expanding our programs beyond just Santa Barbara city and county. We have recently created a similar arrangement with San Luis Obispo. We have what’s called our Powered-Up San Luis Obispo network. We have our Powered-Up Ventura network, we have our Powered-Up Goleta and Carpinteria. All of these are the same type of arrangement for homeowners as we have in Santa Barbara. The Santa Barbara Home Power Plan is part of the Powered Up network, and you can find information out about any of these particular areas by going to poweredupnetwork.com. If you were in another region of California, I’d like to say we’re coming there soon. We are working on that. We have our model, our concept, and our in-market model has actually been noted as being unique and aligning the mission of all stakeholders in a way that no other model does. We have access to funding in order to take this program across the state. So we are actively in discussions with other municipal organizations who have strategic energy plans that see the benefit of deploying this solution in the market to complement all of the other resilient components that they have in place.

Jonathan Robinson: Great, if people want to connect with you personally, what’s the best way for them to do that?

Tony Miller: I’ll take your phone call anytime. My phone number is 805-971-1627. Look forward to hearing from you.

Jonathan Robinson: Yeah, this has been great, Tony. I learned a lot and I’m glad that this type of stuff is happening if people want to get in touch with you, Scott, what’s the best way of doing that?

Scott Williams: Well, I’m scott@scottwilliams.com

Jonathan Robinson: I am Jonathan Robinson, and don’t get in touch with me. I already got plenty going on. Anyways, thanks to our listeners. Hopefully, that was valuable and we’ll see you next time on Sweet Home Santa Barbara.

Scott Williams: Thank you for listening. Please subscribe to our podcast on your favorite app. If you know someone preparing to sell their home, please tell them about the podcast. Visit scott@scottwilliams.com to contact me and download the two free E-booklets. “Is my house saleable now?” and “How not to buy a money pit?” Thank you for listening.